Farm Ireland

Thursday 23 November 2017

Glanbia deal: pros and cons of Thursday's vote

Louise Hogan

Louise Hogan

With the countdown underway to Glanbia Co-op’s latest vote for a share spin-out and agri-business purchase, the pros and cons of the proposed deal are again under the spotlight.

From Carlow to Clonmel shareholder meetings have heard their fair share of concerns raised about the low-margin Dairy Ireland division, the dilution of farmers’ power in the boardroom and whether taking a slice of the Brexit-exposed cheddar cheese division really is timely.

Many farmers have been in favour of the cash injection, while dry shareholders have been particularly vocal as they question what is in it for those who’ve retired from the business.

Glanbia chairman Henry Corbally has urged over 7,500 voting co-op shareholders to turn out this Thursday at Punchestown event centre.

The proposal is to create Glanbia Ireland which will combine Glanbia Ingredients Ireland (GII) and Dairy Ireland’s  agri-business, with a network of 50 stores, and consumer foods division. Farmers will vote on paying €112m to take a 60pc stake, with the plc owning 40pc.

This would mean cashing in on 3pc of the co-op’s valuable shareholding in the plc.

It is seven years since farmers voted against purchasing 100pc of the businesses, a deal that would have cost them a significant chunk of their plc shareholding.

Now, the parameters have changed as they have to part with only a 3pc slice of their plc shareholding as the shares have soared in value.

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A further 2pc will be spun out directly to members, for every 1,000 co-op shares they’ll receive 27 plc shares.

IFA president Joe Healy said the proposals recognise the need for a “more sustainable mechanism to support farmers through volatile product prices”, while funding important milk processing investments.

He said the key issue was that Glanbia paid leading base prices for milk and grain into the future.

The ICMSA’s president John Comer said they were adamant there can be no link between the price being paid for milk to suppliers and purchasing feed from Glanbia agribusiness.

The Pros

• It is money or shares in the pocket. Around 5.9 million shares in Glanbia plc estimated at €100m based on a share price of €17.13 will be shared out to all members of the co-op. The cash in of shares means the average supplier stands to receive around €10,791, and the average member €6,637. It will also create a €40m fund for supporting milk and grain suppliers in times of low price.

• The soaring value of the plc means the co-op will have to part with a smaller stake — this time 3pc to fund the 60pc purchase.

• The new Glanbia Ireland business valued at €1.5bn  will be able to fund a €250-300m investment programme over the next three years without looking for supplier funding. It will pay out dividends providing the co-op with cashflow.

The Cons

• It marks another parting of the ways between the plc and the co-op. They’re relinquishing another seat on the board by 2022, when six of the co-op board will sit on the plc. The holding in the plc drops to 31.5pc down from its current 36.5pc stake

• Is it the best time for farmers to take a major slice of Glanbia’s cheese business? Major concerns have been raised over the impact on cheddar post-Brexit as the UK is the main market. The new majority farmer owned Glanbia Ireland will have brands such as Avonmore, Countrylife, Kilmeaden Cheese, Premier Milk and Wexford cheese.

• The Dairy Ireland division has been a lower margin entity compared with the valuable performance nutrition and nutritional business. It delivered a 5pc profit margin on sales of €616m last year, however it stands closer to 3pc on a five-year average.

• Dry shareholders may feel they are hard done by, as the €40m will be funded by the sale of plc shares and from co-op resources. The active members will receive 75pc patronage, with a 25pc special dividend to all members. Dry shareholders received a 52c dividend per co-op share last year.

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